As a student in Amsterdam I once took Russian studies to become an expert in Kremlinology: the study of the balance of power in the Soviet Union. I particularly remember the musty smell of piles of Russian newspapers in the Eastern Europe Institute. The Soviet Union collapsed and I had little use for Kremlinology, until as an MEP I got a little insight into the European Central Bank (ECB). The ECB doesn't publish minutes, doesn't really explain itself, doesn't give access to internal affairs and forces us to read between the lines. The Italian ECB president, Mario Draghi, speaks in a code language which - having been educated by Jesuits - he masters like no other.
The ECB is based on the model of the German central bank, the Bundesbank. Its main task was the taming of inflation. The first president, Wim Duisenberg , did just that; and at first, so did his successor, the Frenchman Jean-Claude Trichet did. This changed after 2008. The EU didn't see the euro crisis coming. In 2010, José Manuel Barroso, President of the European Commission, called the euro the 'protective shield' against the crisis, while the euro had fuelled the debt crisis with low interest rates. By the end of 2011, the euro stood on the brink of collapse, so the ECB injected €1.1 trillion into the banking sector. When that proved insufficient, Draghi stated in mid-2012 that he would do "whatever it takes" to save the euro. He became the monetary James Bond, albeit with a 'license to print'.
The ECB is no longer the brainchild of the Bundesbank and is going beyond its statutory mandate. That provoked a struggle within the Governing Council of the ECB, which consists of a Board of six people along with the governors of central banks of the euro zone. The majority advocated an expansionary monetary policy. A minority, led by the Bundesbank, is critical of such action. Draghi stands on the side of the majority, but the ECB is nothing without the Bundesbank, the main shareholder of the ECB.
The ECB is located in Frankfurt in the Euro Tower. The bank is getting a new headquarters, estimated at 850 million euro, but the construction costs are now assessed at 1.3 billion euro. Draghi blames the added cost on 'price increases in construction costs'. The ECB President is a non-German, but the chief economist was until recently German. Both Trichet and Draghi clashed with their German chief economist, first Axel Weber, then Jürgen Stark. They criticized the ECB policy and resigned 'for personal reasons '. Draghi intervened. As Chief Economist, he appointed the Belgian Board member Peter Praet. A Belgian is generally flexible. The German member of the Executive Board, Jörg Asmussen, then had to sell the ECB policy to the outside world. Draghi's German head of office was also succeeded by a Belgian. The Netherlands is totally under-represented at the top of the ECB. Opposite the house critics is the Portuguese Vitor Constancio, Vice President of the ECB and voice of Mediterranean Europe.
Draghi has stifled internal criticism, but continues to face a sceptical Bundesbank, led by Jens Weidmann. In the Board of Directors, the Bundesbank voted against certain of Draghi's proposals, such as the license to print money for troubled countries without limits. The Bundesbank fears that this takes away the pressure for structural economic reforms. Weidmann is often - but not always - backed by Klaas Knot, president of the Dutch Central Bank.
Draghi has another opponent: the German Constitutional Court in Karlsruhe. The Constitutional Court, chaired by Andreas Vosskuhle, follows the most sceptical line: constitutionally, Germany may only contribute to euro rescue operations with the consent of the German parliament for amounts that are limited in scope and time. So no blank check, leading to a European transfer union. The Constitutional Court is under fire from a group of over 5,000 German citizens , especially academics who have filed complaints requesting that the ECB measure be declared 'incompatible' with the German constitution . If the Court agrees, the Bundesbank loses the constitutional basis for cooperation, thus clipping Draghi's wings. Without the Bundesbank, the ECB is an empty box.
The ECB is developing into the ATM of a European transfer union. Sabine Lautenschläger, the current German board member of the ECB, is advocating a negative interest rate. Saving money in the bank would then cost money. Meanwhile Knot is pleading for Eurobonds. This affects all Europeans, but happens far above their heads. The ECB is the EU institution with the most power and the least transparency. In short, a Kremlin in Frankfurt.